The Egyptian state has been pushed to take unprecedented measures to weather the storm hitting the domestic economy as a result of the global standoff around the Russia-Ukraine war, especially since the deteriorating economy has already started to put the state leadership under political stress. The general theme of the new governmental policies, in this regard, is to engage more hands, from the private sector and the non-governmental community, such as business entrepreneurs, trade unions, and civil society organizations, into helping the government navigate through the existing complications.
This inclusive approach, it is believed, will also enhance Egypt’s profile with international organizations and allied governments, in the east and the west, which can provide Egypt with the financial aid it badly needs to save the hard-won socio-economic achievements of the past seven years.
The vision for realizing this goal was clearly articulated in El-Sisi’s speech at the presidential Iftar event, which was held in the last week of April amidst the first wave of spiking inflation rates. Two particular decisions were carefully highlighted in this speech – one is political and the other is economic. On the political front, the decision was made to open more space for opposition parties and activists, by granting amnesty to prisoners of conscience and reaching out to the political opposition. On the economic side, the president gave instructions to the government to design a mid-term roadmap to withdraw the state from competing in the market, for the benefit of private sector businesses and reiterated his previous call for listing military-owned commercial enterprises on the exchange market for Egyptian and foreign investors to bid on.
Immediately after the remarkable Iftar speech of President El-Sisi, the presidential bureau and affiliated bodies started to issue lists of political prisoners to be pardoned, and prepare for the national political dialogue. Two weeks later, cabinet ministers with economic portfolios designed a roadmap to revolutionize the defective economic system that Egypt has been stuck with for the past seven decades. If properly accomplished, these two parallel paths of transforming the political and the economic system, will, it is believed, put Egypt back on the right track, not only for the purpose of surviving the current episode of the chronic economic crisis but also for laying the foundation for a democratic future in the country where democratization appears to be Mission Impossible.
SHRINKING GOVERNMENT CONTROL
On the 16th of May, the Egyptian Prime Minister, Mostafa Madbouly, held a press conference to present the government’s plan to open the economy. Madbouly’s presentation clearly showed that the Egyptian government has realized that the outdated approach of centrally managing the market is not working anymore. No matter how big the loans from the International Monetary Fund (IMF) or the generous deposits from sister countries in the Arab Gulf region, it is impossible for the government to single-handedly keep up with the growing population and the recurring global and local challenges.
“The influence of the war in eastern Europe on the global supply chains of food and energy is burdening the Egyptian economy with 130 billion Egyptian pounds in direct cost, in addition to 335 billion Egyptian pounds to handle the indirect consequences;” Madbouly noted after clarifying that the stress is mainly coming from the uncertainty of when the Russia-Ukraine war is going to end. These extra burdens roughly mount to three billion dollars, which is a considerable drain on the government budget that already has a large deficit of more than three billion dollars resulting from the difference between the balance of spending that exceeds 1.7 trillion pounds per year and the annual income of slightly over 1.3 trillion Egyptian pounds.
The foreign aid, either from state allies or international organizations are merely patching the holes of the barren economic system, which, in essence, is a distorted hybrid of the failed socialist project of former President Gamal Abdel Nasser and the incomplete liberalist approach of the assassinated President Anwar Al-Sadat. The time has come for the Egyptian state to build a whole new economic structure that is in harmony with the global economic system. One important step in that direction is encouraging foreign investors to return to the Egyptian market.
EXPANDING PRIVATE SECTOR
In the press conference, the Egyptian Prime Minister explained that the lack of security and stability that overwhelmed the political scene in Egypt, for two years until the overthrow of the Muslim Brotherhood regime in 2013, pushed the foreign investments, also known as “hot money,” out of the Egyptian market. Therefore, the state had to compensate by pouring substantial investments into mega national projects that targeted renovating the infrastructure and improving housing and health conditions for underprivileged citizens.
“Over the period from 2015 to 2021, the state-led national projects created more than five million jobs for Egyptian youth and empowered the local private sector companies by sub-contracting them on these projects;” Madbouly asserted. “That is not to say that these national projects are to be postponed or slowed down, in the coming period, while we deal with the economic crisis. They remain a priority and we will continue working on them as they proved to be of great importance to the Egyptian citizens, and are also paving the way for the return of the hot money investors.”
The government has already started to create incentives for foreign investors that desire to return to the Egyptian market. These incentives are not limited to easing the bureaucratic barriers of acquiring governmental approvals and managing business facilities. The Prime Minister confirmed that investors, either Egyptian or foreign, will be allowed to invest in state-owned assets, too. One step in that direction has already been taken in March by allowing the Abu Dhabi Sovereign Fund to invest 1.8 billion dollars in Egyptian state-owned assets in national companies.
Over the coming four years, the government plans to list state-owned stocks with the value of 10 billion dollars every year, ultimately compounding as 40 billion dollars by the end of the period, for foreign and local investors to buy. At the same time, the government plans to increase the participation of the Egyptian private sector businesses in state-run national projects to 65%, compared to the current rate of 30%. That is expected to offer a golden opportunity to the growing community of entrepreneurs and startups that is one of the strongest pillars of support to the future of the Egyptian economy.
BOOSTING STARTUPS
Egypt has a tremendous startup community that is expanding across various sectors of the economy, ranging from taxi phone applications, up to clean energy production from solar and green resources. According to the MAGNiTT report, in 2021, the Egyptian startup ecosystem attracted a record total of 491 million dollars from local and foreign investors. For that reason, the Egyptian startup ecosystem is ranked the second in the Middle East and the first in Africa, in terms of the venture capital deals it could successfully seal in a relatively short span of time.
Egypt has a sizeable market with never-ending needs for innovative solutions, due to its unique geo-strategic location and the majority young population of 103 million citizens. That offers an ideal environment for startups to emerge and many lucrative opportunities for local and foreign entrepreneurs and venture capitals to seize. The complicated bureaucracy of the Egyptian government is, allegedly, the only challenge that startups face. Registering a new business, in Egypt, is a tedious process that requires a lot of money and time to survive a long cluster of bureaucratic procedures and months of waiting for the governmental license needed to practice the business activity.
Nonetheless, according to the new reform policies stated by the Egyptian Prime Minister, all it would take, in the near future, to register a startup company is to “notify the government via a digital platform, and get the practice license within a maximum period of 20 days.” Madbouly, also, confirmed that some urgent amendments shall be made to the laws regulating the registration of “One Person Company” to involve the young entrepreneurs who run their businesses in the virtual sphere and do not need to rent a physical office space, which is one of the legal conditions, in the existing law, to register a company.
BEFORE JUMPING THE GUN
One can hardly see a bright side to the compounding crises of the COVID-19 pandemic, followed by the global economic crash under the pressure of the Russian invasion to Ukraine. However, perhaps, pushing countries with outdated economic systems, like Egypt, to make drastic changes to its economic structure accompanied by opening the political space for opposition is one of the gems hidden in the sludge of tough circumstances.
The proposed government plan to curb state participation as a competitor in the market by at least 65%, over the coming four years, is working in the favor of the private sector, especially young entrepreneurs and foreign investors. However, the necessary process of floating state-run national enterprises to achieve this goal, is loaded with the hidden risk of marginalizing, and thus weakening, the military commercial enterprises, which has always been the backbone of the Egyptian nation-state.
In the Iftar speech, President El-Sisi said that he plans to “list the companies owned by the Egyptian Armed Forces in the Egyptian stock market for interested private investors to consider.” On paper, that looks like a revolutionary decision that comes in line with the government’s ambitious plan to liberalize the market. However, in practice, jumping the gun by sidelining the military involvement in the economy before building a stable democracy that is capable of containing a durable liberal economic structure, will definitely jeopardize the entire political and economic steadiness of the nation-state. Moreover, allowing foreign investments to infiltrate into the autonomous economic system of the Egyptian Armed Forces will expose the military institution to several unwelcomed strategic nuances.
The military economy has always been the safety net that the nation-state leaned on, in the difficult times of political turbulence and economic crises. In that sense, keeping the military economy strong, by maintaining its independence from the civil economy, is crucial for ensuring a smooth transition from the existing futile economic system to the desired open market economy. Only then, the government may be allowed the luxury of discussing the viability of floating the military economy.
* Dalia Ziada is an Egyptian author and Director of the Liberal Democracy Institute. Her work covers military affairs, political Islamism, and geopolitics in the Middle East and North Africa. Tweets at @daliaziada.
